“But I Signed An Independent Contractor Agreement…”

The Ninth Circuit Court of Appeals Weighs In On Workforce Classification Under California Law

Every time I review an independent contractor agreement I find myself humming George and Ira Gershwin’s song, It Ain’t Necessarily So from Porgy and Bess. In California, at least, such agreements do not prove that a worker is an independent contractor. (“The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.”SG Borello & Sons v. Dept. of Industrial Relations)

Were it otherwise, of course, companies and individuals who hire workers would have an incentive always to require workers to sign independent contractor agreements so they might avoid the costs associated with maintaining a workforce made up of employees. Complying with minimum and overtime wage requirements, paying workers’ compensation insurance premiums, and making rest and meal breaks available are significantly more burdensome and expensive than maintaining a workforce made up of independent contractors. Further, because independent contractors generally are not protected by federal or state anti-discrimination laws, maintaining a workforce comprised of independent contractors can shield companies from civil rights lawsuits.

California’s Multi-Factor Approach

Under California law the existence of an independent contractor agreement is only one of over a dozen factors used by the courts to evaluate whether a worker has been properly classified under the law. The most important factor is the “right to discharge at will, without cause.” In a state where employment is “at will,” but where contracts often include specific provisions pertaining to the termination of the contractor’s services, the right to fire a worker without apparent consequence is a prime indicator of an employment relationship. As the California Supreme Court ruled back in 1989, other factors crucial to the classification determination are:

whether the one performing services is engaged in a distinct occupation or business;

the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

the skill required in the particular occupation;

whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

the length of time for which the services are to be performed;

the method of payment, whether by the time or by the job;

whether or not the work is a part of the regular business of the principal;

whether or not the parties believe they are creating the relationship of employer-employee;

the alleged employee’s opportunity for profit or loss depending on his managerial skill;

the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;

the degree of permanence of the working relationship; and

whether the service rendered is an integral part of the alleged employer’s business.

California courts are required to evaluate the specific terms of engagement carefully and analyze the conditions under which a person works for another before reaching a classification determination in a wage and hour or discrimination lawsuit. Further, under California law, one who works for another is presumed to be an employee, unless the employing party proves otherwise. The burden of proving the existence of an independent contractor relationship shifts to the “employer” to demonstrate its classification is proper once a worker presents sufficient evidence that he or she performed work for the company. Robinson v. George. This burden shifting is set out in the California Labor Code at section 2750.50.

While determining the proper classification of a worker is extremely fact intensive, and not every factor always points in the same direction, California appellate courts have been consistent in their use of the multi-factor approach set out more than 20 years ago by the California Supreme Court.

The Ninth Circuit Court of Appeals Weighs In

On August 5, 2010, the federal Ninth Circuit Court of Appeals analyzed California’s employment classification law in a lawsuit brought by “independent contractors” of a freight pick-up and delivery service who claimed they had been misclassified as independent contractors.

In Narayan v. EGL, Inc. the Ninth Circuit rejected the defendant’s contention that because its workforce signed independent contractor agreements, the court was compelled as a matter of law to find that its workers were properly classified as such. The court applied the appropriate California classification test to the facts of the case and ruled that the relationship between the drivers and the freight-handling company was one of employment. The independent contractor agreement was only one of several factors the court considered in coming to its Porgy and Bess conclusion: Call it what you may, It Ain’t Necessarily So.

Evaluating the many factors deemed relevant to the determination of the nature of the relationship between the drivers and the company, the Court found, among other indices of an employment relationship, that EGL:

trained the workers;

provided them some tools of the trade;

required them to wear company uniforms;

required them to paint their vehicles in company colors;

assigned them routes;

required them to attend company meetings;

required them to arrive at a company facility at a set time each day; and

required them to apply for vacation time;

Based on its analysis of all of these characteristics of the relationship between the drivers and EGL, the Ninth Circuit determined that the lower court’s dismissal of the worker’s employment-based claims was contrary to California law. Though the drivers had signed independent contractor agreements with EGL, the facts demonstrated the workers were employees from start to finish.

While the Ninth Circuit decision in Narayan v. EGL is not earth-shattering or unexpected, the decision is important for California workers whose lawsuits are often transferred (“removed”) from state courts to U.S. District Courts within the Ninth Circuit. The decision re-affirms the Ninth Circuit’s recognition that its District Courts, like California’s Superior Courts, are obliged to use the multi-factor test set out by the California Supreme Court in S.G Borello & Sons v. Department of Industrial Relations many years ago. This is good news for California workers.